Tuesday, May 21, 2013

The First Victims Of The Sports TV Bubble

With the Dodgers and Angels both playing horrible, sub-.500 ball, my attention naturally drifts to other topics. Being my native mien is one of skepticism, and one of my favorite story lines in sports these days is the increasing dependance of sports teams on fantastical TV deals, I saw on Twitter this Deadspin piece in which hundreds of ESPN employees are, supposedly, "out of the blue" getting canned:

So where in the world did this come from? ESPN is monstrously profitable and we hadn't heard a word about this until this morning. Well, ESPN has been gobbling up live rights to events left and right, and those rights are really expensive. We've heard they needed to reduce costs as a result. Also: ESPN's parent company Disney is apparently asking all divisions to cut costs.

That's right. Presaging the squeeze between RSNs and the teams they depend on for content, ESPN has fired a bunch of people responsible for packaging and dispensing said content. ESPN employees have no pull in these negotiations, or at least less than the teams hitting ESPN for revenue streams. And according to the e-mails from now ex-employees following the piece, the bulk of the layoffs hit older, more expensive workers. (Hey, Disney, maybe you should ask Circuit City how that worked out.)

The issue is one of conflicting interests. The owners of CSN Houston, knowing that carriage deals of up to 20 years carries with it the need to get the most while they can, are sticking to their guns on getting the best rate possible. According to reports, that could be as high as $3.40 per subscriber—a lofty sum, especially in light of the dismal performance by the Astros....

... it’s not like having Jim Crane say that CSN Houston is going to have to make “tough decisions” doesn’t add more leverage to those carriers that the RSN is trying to get top-dollar for. Ask yourself: if you know that an RSN is wounded, that ratings are down, and public perception of the club is low, why would you give in and offer a high rate that you are stuck with for 20 years?

Because the Astros are negotiating from weakness, it seems likely they'll eventually have to settle for a lower price than they had hoped. There's only so far you can push these deals before either the RSNs or the cable companies they're selling to push back. As it is, the Astros have a similar problem to that which our neighbors to the south suffer from, namely, non-carriage on a large fraction of the local cable outlets. In fact, only 40% of the Houston area cable customers even have access to Comcast Sports Net Houston, a number that makes the Padres' 78% penetration look positively fantastic.